United States

Transitional reinsurance fee under the Affordable Care Act

INSIGHT ARTICLE  | 

The Affordable Care Act added a new fee on health plans to fund a transitional reinsurance program that pays insurance companies for insuring high-risk individuals. The reinsurance fee is based on the number of employees, spouses and dependents enrolled in the plan. The fee is assessed only for three years (2014, 2015 and 2016) so after employers pay the 2016 fee in 2017, they will have no further obligation to pay reinsurance fees.

Who owes the fee

For insured plans, the insurance company is responsible for paying the reinsurance fee. Therefore, employers with only insured health plans will not pay the fee directly to the government, but instead will indirectly pay the fee through increased premium rates.

Employers with self-insured health plans will pay the fee directly to the government. Generally, the fee is tax-deductible as an ordinary and necessary business expense. Unlike the Patient-Centered Outcome Research (PCOR) fee, funded self-insured health plans subject to ERISA can pay the reinsurance fee with plan assets.  

Paying the fee

The reinsurance fee is based on the average number of covered lives in the plan from Jan. 1 through Sept. 30, regardless of the actual plan year. Employers must report this enrollment count to the U.S. Department of Health and Human Services (HHS) by Nov. 15, using an on-line system called Pay.gov.

To register and set up an account on Pay.gov, employers can click the 'Register' button in the top right corner of the webpage and fill out the information form. After setting up an account, the employer will access the ACA Transitional Reinsurance Program Annual Enrollment and Contributions Submission Form to enter the enrollment count and calculate the fee. The employer then schedules the date it will pay the fee. HHS wants employers to select a payment date tha is at least 30 days after the form is submitted, but prior to the applicable deadline. This gives HHS time to review the form and contact the employer if questions arise.

All fee payments will be made through Pay.gov via ACH transfers from the employer’s bank account. To ensure that the ACH transfer is not blocked by bank security features, employers should talk to their banks about adding the government’s Agency Location Code to its list of approved company IDs. The government code (also called an ALC+2 number) for reinsurance fee purposes is 7505008015 and the company name is USDEPTHHSCMS.

For 2016, the fee is $27 per person. The fee for 2015 and 2014 was $44 per person and $63 per person, respectively. The 2016 fee can be paid in one payment by Jan. 17, 2017, or in two separate payments with the first installment due by Jan. 17, 2017, and the second installment due by Nov. 15, 2017. The following chart summarizes the due dates and amounts:

Due Date

Activity

Fee

Nov. 15, 2016

Submit enrollment count

N/A

Jan. 17, 2017

Remit first installment

$21.60 per covered life

Nov. 15, 2017

Remit second installment

$5.40 per covered life

 

Total

$27.00 per covered life

 

Although the employer is liable for the fee, it can use a third-party administrator to submit the enrollment data and the fee to HHS.

Plans subject to the fee 

Major medical plans sponsored by all types of employers, including tax-exempt organizations and governmental entities, are subject to the reinsurance fee, regardless of the number of plan participants. Retiree-only major medical plans are also subject to the fee; however, special rules apply if Medicare is the primary payer for any plan enrollees. Arrangements exempt from the fee include:

  • Dental or vision benefits under a separate policy or plan or that require a separate employee election
  • A plan that provides only prescription drug benefits
  • An employee assistance program (EAP), disease management program, or wellness program that does not provide major medical coverage
  • Major medical plans that do not meet the 60 percent minimum value standard
  • Health reimbursement account plans (HRAs) that are integrated with a self-insured or insured plan
  • HRAs for retirees only
  • Health Savings Accounts (HSAs)
  • Health flexible spending accounts (FSAs)
  • Certain plans provided by Indian tribes to tribal members and dependents
  • For 2015 and 2016 only, self-insured major medical plans that do not use a third-party administrator for claims processing, claims adjudication or plan enrollment

Determining the covered lives

HHS provides different rules for determining the average number of covered lives (i.e., employees, spouses and dependents) under insured plans versus self-insured plans. Special rules apply if the employer has both an insured and a self-insured plan, or has multiple self-insured plans covering the same individuals. Additional special rules apply if the employer’s plan changed from insured to self-insured or vice versa during the nine-month period.

A plan sponsor of a self-insured plan may use any of the following four methods to determine the number of covered lives in the plan for the nine-month period of Jan. 1 through Sept. 30. Plan sponsors must use only one method for any calendar year; however, they are not required to use the same method from one year to the next and do not need to use the same method for calculating the reinsurance fee and the PCOR fee. Since the different counting methods can produce different results, it is advisable for an employer to do the computations under more than one method to determine which one produces the lowest fee. When doing the calculations, employers should round the number of lives to the nearest hundredth.

1. Actual count method. Count the covered lives on each day of the nine-month period of Jan. 1 to Sept. 30 and divide by the number of days in the period.

Example: An employer has 905 covered lives on Jan. 1, 901 on Jan. 2, 890 on Jan. 3, etc., and the sum of the covered lives for each day of the period is 245,700. The average number of covered lives is 900 (245,700 ÷ 273 days).

2. Snapshot count method. Count the covered lives on a single day in each quarter (or more than one day) and divide the total by the number of dates on which a count was made. Only the first three quarters of the year (e.g., March, June and September) are used, and the same corresponding month in each quarter should be used. The date(s) used for the second and third quarters must fall within the same week of the quarter as the corresponding date(s) used for the first quarter.

Example: An employer decides to count covered lives on the 15th day of the first month of each quarter. It has 900 covered lives on Jan. 15, 910 on April 15, and 880 on July 15. The average number of covered lives is 896.67 [(900 + 910 + 880) ÷ 3 days].

3. Snapshot factor method. Count the covered lives on a single day in each quarter (or more than one day) and divide the total by the number of dates on which a count was made. Only the first three quarters of the year (e.g., March, June and September) are used, and the same corresponding month in each quarter should be used. The date(s) used for the second and third quarters must fall within the same week of the quarter as the corresponding date(s) used for the first quarter.

Under this method, the number of lives covered is the number of employees with self-only coverage on the designated dates plus the number of employees with other than self-only coverage, multiplied by 2.35. Here is an example of how the snapshot factor method works:

 

Jan. 15

April 15

July 15

Total

Employees with self-only coverage

300

310

320

930

Employees with other than self-only coverage (family or dependent coverage)

210

220

225

655

 

The average number of covered lives is 823.08 [(930 + (655 x 2.35)) ÷ 3 days].

4. Form 5500 method. A plan sponsor can determine the number of covered lives based on the most recently filed Form 5500 for the plan. If the plan offers just self-only coverage, the plan sponsor adds the participant counts at the beginning and end of the year (lines 5 and 6d on Form 5500) and divides by 2. If the plan also offers family or dependent coverage, the plan sponsor adds the participant counts at the beginning and end of the year (lines 5 and 6d on Form 5500) without dividing by 2. This is the only method that is based on the plan year instead of on the nine-month period of Jan. 1 through Sept. 30.

Example: An employer offers single and family coverage with a plan year ending on Dec. 31. The most recent Form 5500 reported 132 participants on line 5 and 148 participants on line 6d. The number of covered lives is 280 (132 + 148).

Action steps

To evaluate liability for the reinsurance fee, plan sponsors should identify their major medical plans and determine if each plan is insured or self-insured. If any plan is self-insured, the plan sponsor should take the following actions:

  1. Determine if the plan is exempt from the reinsurance fee or if any special rules apply
  2. Determine whether the plan’s third-party administrator will submit the enrollment count and the fee
  3. Decide which method for counting covered lives will be used (employers can choose whichever method produces the lowest fee)
  4. Determine the average number of covered lives in the plan from Jan. 1 through Sept. 30, 2016
  5. Register and set up an account on Pay.gov before Nov. 15, 2016
  6. Submit the enrollment count on Pay.gov by Nov. 15, 2016
  7. Schedule payment of the fee through Pay.gov
  8. Provide the government’s ID code (7505008015) and company name (USDEPTHHSCMS) to the bank for the ACH transfer
  9. Pay the entire fee or the first installment via ACH through Pay.gov at least 30 days after submitting the enrollment count, but no later than Jan. 17, 2017
  10. Pay the second installment (if applicable) by Nov. 15, 2017
  11. Keep supporting documentation of the enrollment count and fee payment for at least 10 years
  12. Consult the CMS website for additional information

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